Apple Moves In on Your Wallet

With the iPod, iTunes, iPhone, iPad, and iMac, Apple is the most powerful tech company in the world. It’s also the No. 1 music retailer in the U.S. and among the top sellers of online movies, too.

What can it possibly do to top this? It might become an iBank.

That could happen thanks to a technology that lets you use your mobile phone to pay for stuff in bricks-and-mortar stores, not just online. The technology, called near-field communication, involves a microchip that can send and receive data across very short distances, about four inches. Instead of swiping a credit card, you hold your phone near a reader and let the data zip between the two devices.

Richard Doherty, research director at Envisioneering Group, a research firm in Seaford, N.Y., said he believes Apple intends to put NFC chips into the next versions of the iPhone and iPad as the first step toward a business that Doherty calls “iCash.” This could transform the market for mobile commerce, not to mention the company itself: “It’s the bank of Apple.” As usual, Apple says it doesn’t comment about speculations. But Doherty says his firm has sources on standards bodies and at contract manufacturers that lead him to believe a mobile-payment system is in the works.

There’s nothing new about this technology. Nokia and other manufacturers have been shipping phones with NFC chips in them for several years. Doherty says he's used an NFC phone to pay for a tram ride in Barcelona. But so far the chips’ use has been limited.

Where things get interesting is in the system for processing payments. Apple’s iTunes Store already has 160 million credit-card numbers on file. People use iTunes to buy music, movies, books, and apps. Why not extend that to other purchases as well—like groceries or movie tickets? “When NFC meshes with iTunes, the world suddenly changes,” Doherty says.

Right now, when you use iTunes, Apple bills your credit-card company—and pays onerous processing fees. But with this new system, iTunes could draw money directly from your bank account. Apple would be issuing the equivalent of credit cards in the form of smart phones and other devices and operating its own payment-processing system, something akin to PayPal.

Of course, like the chips, PayPal isn’t a new concept. But Apple’s genius has always involved taking existing ideas and bringing them together in ways that are easy to understand and use. The iPod wasn’t the first MP3 player. Nor were the iPhone and iPad the first in their categories. The real reason for the success of these devices—the true unsung hero at Apple—is the iTunes software and iTunes Store. Because Apple provided them, it wasn’t just selling hardware. It was selling a holistic experience, one whose pieces all worked together seamlessly.

The same could be true in mobile commerce. Sure, tech geeks might be able to take a Samsung phone with an NFC chip and connect it to their PayPal account. But regular folks will want something they can set up with a few clicks. That’s where Apple excels. And that’s what will be needed if NFC and mobile payments are ever going to become a technology used by everyone.

And that’s why, once again, though Apple may not be the first player in this field, it may be the first one to do it right.

LYONS is technology editor at NEWSWEEK and the creator of Fake Steve Jobs, the persona behind the notorious tech blog the Secret Diary of Steve Jobs. Before joining NEWSWEEK, Lyons spent 10 years at Forbes.